September 26, 2010

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Global Logistic Properties Ltd. agreed to buy more than 200 warehouses from Industrial Income Trust Inc. for $4.55 billion in a deal that will make it the second-largest owner of U.S. industrial real estate.

In its second American acquisition this year, Singapore-based GLP will purchase assets that comprise 58 million square feet (5.4 million square meters) in 20 major markets, including Los Angeles, Washington and Pennsylvania, GLP said in a written statement Wednesday.

The deal will increase GLP’s U.S. assets by 50 percent, to 173 million square feet, and the company will surpass Indianapolis-based Duke Realty Corp. to be the country’s second-biggest owner of industrial real estate, after Prologis Inc. The acquisition also will increase GLP’s revenue from fund-management fees by about 50 percent, said CEO Ming Mei.

Duke says it owns more than 140.7 million rentable square feet of industrial and office, including medical office, space in 22 major metropolitan areas.

“We’re focusing on continuing to grow this asset, improve the lease-up ratios and increase the cash yield,” Mei said Wednesday.

U.S. warehouses are attracting investors as Web commerce helps drive demand for the storing and transporting of goods. Prologis in April teamed with Norway’s sovereign wealth fund for a $5.9 billion purchase of U.S. industrial properties and related assets.

GLP said it expects to own 100 percent of the assets when the deal with Industrial Income Trust closes, expected by Nov. 16, and reduce its stake to 10 percent by April by selling part of its interest to institutional investors. The properties will become part of GLP U.S. Income Fund II.

Fee revenue

The company will continue to operate the properties, which will increase assets under management to about $32 billion. Mei said he expects fee revenue to increase to about to about $230 million in the next fiscal year, which begins in April, from about $150 million this year.

GLP said it plans to provide $1.9 billion of equity for the purchase with cash on hand and existing credit lines. The transaction is being done at a capitalization rate of 5.6 percent, the company said. Cap rates are a measure of investment yield used by real estate companies.

The warehouses being acquired are 93-percent leased on average, and have a weighted average lease expiration of almost five and a half years, GLP said.

Vacancies at U.S. warehouse and distribution centers fell to 10.8 percent in the second quarter from 11.3 percent a year earlier, while rents after landlord discounts rose 2.5 percent, according to property-research firm Reis Inc.

While industrial vacancies across the U.S. are at their lowest in at least 15 years, that has yet to translate into “consistently large” rent growth as the supply of new buildings grows, Bradley Doremus, an associate at Reis, said in a July 15 report.

New market

GLP entered the U.S. warehouse market in February, with the $8.1 billion purchase of IndCor Properties Inc. from Blackstone Group LP. The deal was done jointly with Singaporean sovereign wealth fund GIC Pte, GLP’s largest shareholder, with about 35 percent of the company. Net effective rents at the IndCor properties have grown 12 percent since February on lease renewals, said GLP Chief Operating Officer Stephen Schutte.

“With vacancies down to 15-year lows, in time we will see even greater rental growth,” he said.

After its latest deal is completed, GLP will oversee more than 500 million square feet of industrial real estate, including properties in China, Japan and Brazil. GLP was founded in 2008 by Jeffrey Schwartz, former CEO of Prologis, and Mei, former head of Prologis’s China and emerging Asia business. They formed GLP by joining with GIC to buy Prologis’s Chinese properties and some of its Japanese real estate. Schwartz died of pancreatic cancer last year.

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